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CompCom jurisdiction called into question in forex rigging case

Alleged collusion’s effect on the rand will be hard to quantify – TreasuryOne director.

NOMPU SIZIBA: The Competition Tribunal has rejected a number of respondent banks that pushed for currency-fixing charges against them to be dismissed for one reason or another, with some questioning the competition authorities’s jurisdiction to even hear the matter. The tribunal has also ordered that the Competition Commission re-draft its complaint or referral against the banks to what it describes as “one over-arching conspiracy” and has said that the commission must limit the relief it seeks from international bank respondents to a declaratory order – in other words, they are not going to be able to fine those international banks.

Read: Tribunal gives forex-rigging case the green light

What does this all mean? Well, I’m joined on the line by Sipho Ngwema, the head of communications at the Competition Commission, and Andre Cilliers, a director at TreasuryOne. Thanks very much, gentlemen, for joining us. This is a very complex issue, with South African banks Absa, Standard Bank and Investec having been accused of being involved in the price-fixing of currency, namely the rand vis-à-vis the US dollar – with even more international banks said to be involved, like JP Morgan Chase and Company, Standard New York Securities, HSBC, Standard Chartered Bank and a whole host of others.

The Competition Commission has been seeking to take legal proceedings against these banks for currency price-fixing. Many of these banks in turn have questioned the competition authorities’ jurisdiction over this matter, as many of their fixes are done cross-border and so on. So, please, if you could, Sipho, in simple but informative and educative terms, just break down this story for us.

SIPHO NGWEMA: Good evening, Nompu. I know that the story has been proceeding for a while and the decision that we are taking today is that the banks that raised a number of illegal challenges, not on the merits of the case, but on the technical issues around the case – one of them, as you mentioned correctly, is around jurisdiction. And some of the institutions have been seeking more particulars in terms of our charges.

So, this is what the tribunal delivered a decision on today. In fact, I must say, it’s a long-awaited decision, but we are happy because it brings us closer to the banks talking or responding to the merits of the allegations that we are putting before them.

There have been a number of applications and you must remember we have about 18 respondents in this matter, which are all banks, and we have received the information that we have from one the reputable banks in South Africa, which then blew the whistle on what they were doing.

So, we are edging closer to the banks responding to whether or not they did what the other banks did together. But we are there yet, because their legal teams are firstly challenging that we do not have the right for one reason or the other, as you said [that] we don’t have the right to prosecute them because we have no jurisdiction. Our argument is that we do have, given the fact that whatever they allegedly did had an impact in South Africa.

NOMPU SIZIBA: Sipho, still with you, it’s kind of a strange one that, at the end of the day, even if the international banks put their hands up and say, yes, we did do wrong, it seems as though you have no recourse against them. You can’t levy an administrative fine against them – or at least that’s what the tribunal seems to be saying. Is my interpretation correct?

SIPHO NGWEMA: It may be correct, but we are still studying the judgment. Quite frankly, it’s quite a lengthy judgment, and our guys are going through that particular judgment. But we’ll have to respond and show the reasons why the tribunal thinks that some of the institutions that we may have charged – we may not be able to enforce the decisions if they are taken against them. So we’ll be able to respond comprehensively in that regard once we have fully studied the judgment.

NOMPU SIZIBA: Andre, you are in the world of trading and understanding markets. The rand is one of the most liquid currencies in the world. What are your thoughts around this case, and particularly the report that was issued by the Competition Tribunal today?

ANDRE CILLIERS: Well, my view is that – if I read the news – it’s expected of them to sort of, almost, quantify the impact of what happened in the collusions, in terms of the impact on the rand and the levels where it went. That will be extremely difficult, because in the markets there could be and can be collusion between traders and banks to buy dollars in anticipation of expected transactions that might be known to them. In other words, they might know that there is a very big transaction, of either an import nature or a capital nature, and then go into the market in advance by agreeing with each other that they will buy dollars in anticipation of this transaction happening.

That will drive up the currency to certain levels, that will then lead to a higher price that’s given either to the transaction or to the client, which means that the client pays a lot more for a transaction than they would have paid in the normal course of business had there not been collusion. And the banks would then eventually pocket a much bigger profit.

But thereafter, market forces will drive back the rand to normal levels, and market forces and supply and demand will determine the further path of the rand. So banks cannot collude with each other and keep the rand there for an indefinite period of time.

It’s difficult to quantify it and hence I think it might be difficult, from what I read out of the charge sheets needs to be changed to, to actually quantify that.

NOMPU SIZIBA: Andre, in you view, do you think the Competition Commission is just basically scratching the surface, given, like you say, the fact that a few small players can’t really determine the market price of a currency like the rand because there are so many players playing it? Do you think that they are merely scratching the surface and perhaps their resources could be better spent elsewhere, despite the fact that wrong is wrong?

ANDRE CILLIERS: No. Wrong is wrong and I’m not going to say that the banks cannot collude with each other, because we are speaking of very, very big banks – banks with big capital behind them, big facilities, big limits. So they can go in and if a couple of banks stand together they could buy $1 billion or $1.5 billion, and that will definitely impact what the rand’s path is at that specific point in time, up to the point where the actual transactions that they are anticipating take place.

So, I think that the tribunal is not wrong in going after this; I’m saying it might be very, very difficult. But there are [chat] rooms where people were chatting, and if they could bring that forward and prove that, the banks will definitely have a problem and will be faced with penalties.

So no, I do not think they have gone on a wild goose chase.

NOMPU SIZIBA: Understood. The pity about what you are saying is that, if they were able to bring evidence to the fore, from what I read from the tribunal report it seems as though international banks could not be punished with an administrative fine. But, as Sipho says, they are still reading the longer version of the document to see what recourse they can take.

Sipho, just coming back to you, my understanding is that the Competition Tribunal has asked you, the Competition Commission, to go back to the drawing board in terms of the referrals or the complaints that you are making against these banks. Does that suggest that perhaps your original complaint was complex, that you need to have a couple of issues that you can address so that you are more successful?

SIPHO NGWEMA: Indeed there is that kind of thinking from the tribunal’s point of view. As I said, we have been studying what exactly they are saying. It seems as though it says there is a particular manner in which they want us to run the trial, which would mean that the tribunal may be saying that we need to draft our papers in a particular way, in order for them to be able to adjudicate the matter.

But once we have studied the decision in full, then we will be able to respond in terms of exactly what is expected of us, and what we respond in that regard.

However, I must emphasise in terms of the questions that you asked Andre, collusion in cartels is an offence in South Africa, and therefore South Africa is a country of laws, and those banks were involved in that. They know. That’s why they had fictitious bids and therefore were defrauding people in that process. So, we need to make sure that we get to the bottom of that particular matter. And what gratifies us right now is the fact that the application by the banks for the matter to be dismissed was rejected and the banks eventually must answer to the merits of what they allegedly did, and therefore some of them actually pleaded guilty in another parts of the world. So we know that they are just kicking that and at the end of the day we must go to the merits.

NOMPU SIZIBA: Alright Sipho, we are going to leave it there. Andre, thank you very much for your time as well.

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Compcom still have to show what positive results there are, after years of meddling in the economy.

Yarwell no fine – my views – I have known Andre Cilliers for many moons – Andre just confirmed that there ‘’ might have been collusion’’ amongst (local) Banks.
Treasury One also operates as an outsourcing company and would shoot itself in the foot by ‘’giving a different’’ view. Outsourcing companies (in line with their FX licenses) can provide a lot a ‘’advice” to their FX clients – also executing their orders, etc. on a daily basis.
Treasury One has FX dealing lines with most of the local Banks and they have to ‘’balance their net open positions’’ – after trading with their clients, at the end of the trading day…they cannot run ‘’net open’’ positions overnight etc.
Hence, they just cannot afford to ‘’badmouth’’ any counterparty (Banks like Standard and Investec – although Citi and Absa admitted their collusion involvement and paid fines to be condoned), during this investigation.
I, therefore, reject Andre’s views, etc. as he and Treasury One have a vested interest in the daily movements, etc., of the Rand. Banks provide their clients with daily views and advice etc., hence they will always be in a position to give contrary ‘’information’’ about the market in line with their collusion ‘’positions’’.

Andre Cilliers of course has a vested interest as do all of us in the financial markets who provide services to the major banks. You can agree or disagree with Andre but to his credit I have never found him unwilling to express an opinion. Unlike Bank officials and FX professionals who I am sure have been warned off the subject altogether Andre can venture a view. CompCom are trying to scare up some admission of guilt fines. Unless they get really lucky there is no way they have the skills to be able understand the market mechanics AND make a viable case against the banks.

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